ETF 101: Spyders, Qubes, Diamonds

Exchange–traded index funds, such
as the Standard & Poor’s 500 Spyders (SPY ASE), are ideal for this
purpose. Among the Spyders advantages are:

1)They
give you instant exposure to 500 different US stocks, including all the
well-known blue chips.Broad
diversification muffles the impact of a blowup at any one company.

2)You
can buy and sell Spyders anytime during the trading day, through any broker.

3)Spyders are highly liquid. The difference between buy and sell prices for
Spyders is normally only a penny or two (on an $80 share).

4)You
can sell them short with no rule against selling on downticks to hedge against a
market decline.

5)Pricing is simple: Spyders are worth one-tenth the S&P 500index (plus a small amount for accrued
dividends).

6)Annual
expenses run to just $0.12 per $100 invested. Spyders pay quarterly dividends.
The current yield hovers around 2% or double a money market fund.

“Overall,
Spyders are one of the great financial advances of our time. Learn to use them,
and you’ll get to the head of the financial class.After Spyders, the most active
exchange-traded funds by dollar volume are the NASDAQ 100 Qubes (QQQ ASE)
and the Dow Jones Diamonds (DIA ASE). As the names apply, the Qubes make
you a fractional owner of the 100 largest non-financial stocks on the NASDAQ,
while the Diamonds take in the 30 stocks in the Dow Jones industrial
average.Why choose these over
Spyders?If you are looking for an
aggressive play, the NASDAQ 100 index usually fluctuates more – on both the
upside and the downside – than the S&P 500. The Dow Diamonds, on the other
hand, tend to be less volatile, both up and down, than the S&P. The Dow
includes only three technology stocks and all three (IBM, Intel, and Microsoft)
rank with the steadiest names in the industry. For investors with a timer
horizon of a year or more, I advise buying the Qubes at $27.20 or better and the
DIA at $82.80 or less.”